Generally, we can measure different indices through MS-Excel. But it needs to understand the formula of the index (FGT index). Just entry the information into Ms-Excel on the required variables of both denominator and numerator of the FGT index formula and then calculate the ratio.   

To calculate poverty and inequality index, there exist a free software very useful. Please, take a look at :

http://dad.ecn.ulaval.ca/

DAD: A Software for Distributive Analysis / Analyse Distributive This programme is freely distributed and freely available. 

thank you all for yours' answer

You may checkup the DASP package of World Bank, quite comprehensive stuff!

The FGT formula is pα = 1/N ∑ip ((z – yi)/z)α

When you have a Sample or Population of ‘N’ individual and their incomes or expenditures;

When you have a poverty line, z indicating an individual whose income below z is identified as poor;

In one column or as a new variable you first compute gi =  ((z-yi) / z) for each individual those who are poor (for those yi < z).

for those who are non-poor (yi > z), keep (assign) a zero.

In the next column you calculate gi raised to the power zero i.e. g^0

In the next column you calculate gi raised to the power one i.e. g^1

In the next column you calculate gi raised to the power two i.e. g^2

here 0,1 and 2 are values of alpha (α)

All these are to be calculated for the individuals or cases having income or expenditure below z (i.e. the poverty line), the remaining individuals (non-poor) would (be assigned) get zero as they are non-poor (above the poverty line).

Take the sum of individual values of the poor (or all, as it would not be a matter as all the non-poor are assigned with zero) for three indicators g^0, g^1 and g^2.

Divide each one (the sum of g^0, sum of g^1 and sum of g^2 separately) by the total number of individuals in the sample or population.

When you do for three indicators will get Poverty index when α = 0, α= 1, and α = 2.

These are seen as head count ratio i.e. HCR or poverty ratio (P0), poverty gap index (P1) and the squared poverty gap (P2).

I am sure it is understandable.

thank you.

for some background information the following literature is very usefull:

James Foster; Joel Greer; Erik Thorbecke The Foster–Greer–Thorbecke (FGT) poverty measures: 25 years later Springer-Verlag The Journal of Economic Inequality Year:2010 Month:12 Day: Volume:8 Issue:4 First page:491 Last page:524

Udo Ebert; Patrick Moyes A Simple Axiomatization of the Foster, Greer and Thorbecke Poverty Orderings Wiley Blackwell (Blackwell Publishing) Journal of Public Economic Theory Year:2002 Month: Day: Volume:4 Issue:4 First page:455 Last page:473

ames Foster, Joel Greer and Erik Thorbecke A Class of Decomposable Poverty Measures JSTOR Econometrica Year:1984 Month:05 Day: Volume:52 Issue:3 First page:761 Last page:766

Mishra, Udaya S.; Mishra, Rudra Narayan On comparison of nutritional deprivation: an illustration using Foster Greer Thorbecke criterion Informa UK (Taylor & Francis) Applied Economics Letters Year:2009 Month:06 Day:23 Volume:16 Issue:10 First page:1021 Last page:1024

Thanks a lot for your answer.

Hi Bezon.

Did you finish with FGT index. I tried to input data from excel file, however it was unsuccessful. Can you share your experiences?

Thanks

Dear Nguyen,

Yes. I have completed it successfully. It is quite difficult to make you understood it by saying. Therefore, if you want you may send me data on poverty line and individuals income and I will measure and send you back the result.

Thanks you.

Regards,

Bezon Kumar

Dear Mokturi

Just out of interest, why do we divide by the total number of individuals in the sample and not just the poor as you wrote:

Divide each one by the total number of individuals in the sample.

Anyone can provide the answer.

Then only it represents the whole of sample population.....poverty ratio is to population. Means, the ratio of poor among the population one evaluates....

Dividing each one by total sample population (N) I mean.....divide sum of g^0 by N, then sum of g^1 by N and then g^2 by N to get Head count ratio, poverty gap index, and squared poverty gap index respectively....

For head count it is fine because it is the whole population. But when we work out the sums of g^1 and g^2 we exclude the non-poor (only to include them in N). What are the implications if you divide just by the number of the poor to obtain what should, on average, be distributed to the poor as a proprtion of the poverty line. Your thoughts?

Dear Oliver Mtapuri

My understanding is that when we compute sums of g^1 and g^2 we are not excluding non-poor, only thing is that as all the non-poor has incomes above the poverty line, we assign zero value to indicate none of the non-poor have gap with respect to poverty line. The Poverty Gap Index indicates the average gap as a ratio/percent of poverty line in the total population.

If we take the Poverty Gap index / ratio with respect to the number of poor (as denominator), the value of the ratio would be higher than the value we derive when the denominator is total population. A rough calculation of mine indicated me the value of index would be 1.67 times higher. It has a policy implication in the sense of poverty alleviation budget i.e. resources needed to be transferred to bring the poor out of poverty condition.

Secondly, taking the total population (poor and non-poor) as denominator has an advantage of comparability across groups (as identified with their socio-economic characteristics) and communities, regions (geographical or administrative) and countries.

Hope I am making the point right.

The higher value is what exactly the poor need to lift them out of poverty. I agree with most of your points. Thank you for your response. Appreciated.

Thanks for the discussion. Just to rethink over it again and to make it further clear, in case of poverty gap index i.e. P1 = 1/N ∑((z – yi)/z)^1, the denominator whether the total population (N) or the number of poor (P) it appears to be not a matter especially for the poverty alleviation budget. Because to estimate the poverty alleviation budget (PAB) we take PAB = ((P1 * Z) * N), if we take denominator N for calculating P1 or it would be PAB = ((P1 * Z) * P) if we take denominator P for deriving P1. Here P1 is the poverty gap index (PGI) and number of poor is derived with P = P0 / N where P0 is head count ratio (HCR) of poverty. In both the calculations, the PAB would be equal.

However, the thing is that as I mentioned earlier, the index value of P1 would be higher with P as denominator than that of N. Again, the index value of P1 when derived with P as denominator, is sensitive to and hence vary with the Head Count Ratio (HCR) of Poverty (i.e. P0). If we take the ratio of index value of P1 derived with P to that derived with N, it would be higher when HCR (P0) is lower and such ratio is lower when when HCR (P0) is higher. It matters when we compare the poverty across groups, communities, regions, countries etc. Therefore, it would be suggestive to have total population (N) as denominator (to divide the sum of g^1) rather than the number of poor (P).

Thank you. Trying some new indices.

Thanks everyone for answer

Hi dear friend Are you still researching this topic?

Please, I am currently trying to do a poverty analysis using the FGT model. I need a step by step instructions on how to run the analysis using a software.

Responses and links to videos will be highly appreciated.